Company Law Reform Bill [HL] (86-92)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (86-92)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 4 — Transactions with directors requiring approval of members
86

(2)
A company may not agree to such provision unless it has been approved—
(a)
by resolution of the members of the company, and
(b)
in the case of a director of a holding company, by resolution of the
members of that company.
(3)
The guaranteed term of a director’s employment is—
5
(a)
the period (if any) during which the director’s employment—
(i)
is to continue, or may be continued otherwise than at the
instance of the company (whether under the original agreement
or under a new agreement entered into in pursuance of it), and
(ii)
cannot be terminated by the company by notice, or can be so
10
terminated only in specified circumstances, or
(b)
in the case of employment terminable by the company by notice, the
period of notice required to be given,

or, in the case of employment having a period within paragraph (a) and a
period within paragraph (b), the aggregate of those periods.
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(4)
If more than six months before the end of the guaranteed term of a director’s
employment the company enters into a further service contract (otherwise than
in pursuance of a right conferred by or under the original contract on the other
party to it), this section applies as if there were added to the guaranteed term
of the new contract the unexpired period of the guaranteed term of the original
20
contract.
(5)
A resolution approving provision to which this section applies must not be
passed unless a memorandum setting out the proposed contract incorporating
the provision is made available to members—
(a)
in the case of a written resolution, by being sent or submitted to every
25
eligible member at or before the time at which the proposed resolution
is sent or submitted to him;
(b)
in the case of a resolution at a meeting, by being made available for
inspection by members of the company both—
(i)
at the company’s registered office for not less than 15 days
30
ending with the date of the meeting, and
(ii)
at the meeting itself.
(6)
No approval is required under this section on the part of the members of—
(a)
a body corporate that is not—
(i)
a company as defined in section 1 of this Act, or
35
(ii)
a body registered under the Companies Acts by virtue of
section 1006 (bodies not formed under Companies Acts but
authorised to register);
(b)
a body corporate that is a wholly-owned subsidiary of another body
corporate.
40
(7)
In this section “employment” means any employment under a director’s
service contract.
190
Directors’ long-term service contracts: civil consequences of contravention
If a company agrees to provision in contravention of section 189 (directors’
long-term service contracts: requirement of members’ approval)—
45
(a)
the provision is void, to the extent of the contravention, and

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 4 — Transactions with directors requiring approval of members
87

(b)
the contract is deemed to contain a term entitling the company to
terminate it at any time by the giving of reasonable notice.
Substantial property transactions
191
Substantial property transactions: requirement of members’ approval
(1)
A company may not enter into an arrangement under which—
5
(a)
a director of the company or of its holding company, or a person
connected with such a director, acquires or is to acquire from the
company (directly or indirectly) a substantial non-cash asset, or
(b)
the company acquires or is to acquire a substantial non-cash asset
(directly or indirectly) from such a director or a person so connected,
10

unless the arrangement has been approved by a resolution of the members of
the company or is conditional on such approval being obtained.

For the meaning of “substantial non-cash asset” see section 192.
(2)
If the director or connected person is a director of the company’s holding
company or a person connected with such a director, the arrangement must
15
also have been approved by a resolution of the members of the holding
company.
(3)
A company shall not be subject to any liability by reason of a failure to obtain
approval required by this section.
(4)
No approval is required under this section on the part of the members of—
20
(a)
a body corporate that is not—
(i)
a company as defined in section 1 of this Act, or
(ii)
a body registered under the Companies Acts by virtue of
section 1006 (bodies not formed under Companies Acts but
authorised to register);
25
(b)
a body corporate that is a wholly-owned subsidiary of another body
corporate.
(5)
For the purposes of this section—
(a)
an arrangement involving more than one non-cash asset, or
(b)
an arrangement that is one of a series involving non-cash assets,
30

shall be treated as if they involved a non-cash asset of a value equal to the
aggregate value of all the non-cash assets involved in the arrangement or, as
the case may be, the series.
(6)
This section does not apply to a transaction so far as it relates—
(a)
to anything to which a director of a company is entitled under his
35
service contract, or
(b)
to payment for loss of office as defined in section 214 (payments
requiring members’ approval).
192
Meaning of “substantial”
(1)
This section explains what is meant in section 191 (requirement of approval for
40
substantial property transactions) by a “substantial” non-cash asset.
(2)
An asset is a substantial asset in relation to a company if its value—
(a)
exceeds 10% of the company’s asset value and is more than £5,000, or

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 4 — Transactions with directors requiring approval of members
88

(b)
exceeds £100,000.
(3)
For this purpose a company’s “asset value” at any time is—
(a)
the value of the company’s net assets determined by reference to its
most recent statutory accounts, or
(b)
if no statutory accounts have been prepared, the amount of the
5
company’s called-up share capital.
(4)
A company’s “statutory accounts” means its annual accounts prepared in
accordance with Part 16, and its “most recent” statutory accounts means those
in relation to which the time for sending them out to members (see section 430)
is most recent.
10
(5)
Whether an asset is a substantial asset shall be determined as at the time the
arrangement is entered into.
193
Exception for transactions with members or other group companies

Approval is not required under section 191 (requirement of members’
approval for substantial property transactions)—
15
(a)
for a transaction between a company and a person in his character as a
member of that company, or
(b)
for a transaction between—
(i)
a holding company and its wholly-owned subsidiary, or
(ii)
two wholly-owned subsidiaries of the same holding company.
20
194
Exception in case of company in winding up or administration
(1)
This section applies to a company—
(a)
that is being wound up (unless the winding up is a members’ voluntary
winding up), or
(b)
that is in administration within the meaning of Schedule B1 to the
25
Insolvency Act 1986 (c. 45) or the Insolvency (Northern Ireland) Order
1989 (S.I. 1989/2405 (N.I. 19)).
(2)
Approval is not required under section 191 (requirement of members’
approval for substantial property transactions)—
(a)
on the part of the members of a company to which this section applies,
30
or
(b)
for an arrangement entered into by a company to which this section
applies.
195
Exception for transactions on recognised investment exchange
(1)
Approval is not required under section 191 (requirement of members’
35
approval for substantial property transactions) for a transaction on a
recognised investment exchange effected by a director, or a person connected
with him, through the agency of a person who in relation to the transaction acts
as an independent broker.
(2)
For this purpose—
40
(a)
“independent broker” means a person who, independently of the
director or any person connected with him, selects the person with
whom the transaction is to be effected; and

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 4 — Transactions with directors requiring approval of members
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(b)
“recognised investment exchange” has the same meaning as in Part 18
of the Financial Services and Markets Act 2000 (c. 8).
196
Property transactions: civil consequences of contravention
(1)
This section applies where a company enters into an arrangement in
contravention of section 191 (requirement of members’ approval for
5
substantial property transactions).
(2)
The arrangement, and any transaction entered into in pursuance of the
arrangement (whether by the company or any other person), is voidable at the
instance of the company, unless—
(a)
restitution of any money or other asset that was the subject-matter of
10
the arrangement or transaction is no longer possible,
(b)
the company has been indemnified in pursuance of this section by any
other persons for the loss or damage suffered by it, or
(c)
rights acquired in good faith, for value and without actual notice of the
contravention by a person who is not a party to the arrangement or
15
transaction would be affected by the avoidance.
(3)
Whether or not the arrangement or any such transaction has been avoided,
each of the persons specified in subsection (4) is liable—
(a)
to account to the company for any gain that he has made directly or
indirectly by the arrangement or transaction, and
20
(b)
(jointly and severally with any other person so liable under this section)
to indemnify the company for any loss or damage resulting from the
arrangement or transaction.
(4)
The persons so liable are—
(a)
any director of the company or of its holding company with whom the
25
company entered into the arrangement in contravention of section 191,
(b)
any person with whom the company entered into the arrangement in
contravention of that section who is connected with a director of the
company or of its holding company,
(c)
the director of the company or of its holding company with whom any
30
such person is connected, and
(d)
any other director of the company who authorised the arrangement or
any transaction entered into in pursuance of such an arrangement.
(5)
Subsections (3) and (4) are subject to the following two subsections.
(6)
In the case of an arrangement entered into by a company in contravention of
35
section 191 with a person connected with a director of the company or of its
holding company, that director is not liable by virtue of subsection (4)(c) if he
shows that he took all reasonable steps to secure the company’s compliance
with that section.
(7)
In any case—
40
(a)
a person so connected is not liable by virtue of subsection (4)(b), and
(b)
a director is not liable by virtue of subsection (4)(d),

if he shows that, at the time the arrangement was entered into, he did not know
the relevant circumstances constituting the contravention.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 4 — Transactions with directors requiring approval of members
90

(8)
Nothing in this section shall be read as excluding the operation of any other
enactment or rule of law by virtue of which the arrangement or transaction
may be called in question or any liability to the company may arise.
197
Property transactions: effect of subsequent affirmation

Where a transaction or arrangement is entered into by a company in
5
contravention of section 191 (requirement of members’ approval) but, within a
reasonable period, it is affirmed—
(a)
in the case of a contravention of subsection (1) of that section, by
resolution of the members of the company, and
(b)
in the case of a contravention of subsection (2) of that section, by
10
resolution of the members of the holding company,

the transaction or arrangement may no longer be avoided under section 196.
Loans, quasi-loans and credit transactions
198
Loans or quasi-loans: requirement of members’ approval
(1)
A company may not—
15
(a)
make a loan or quasi-loan to a director of the company or of its holding
company, or to a person connected with such a director, or
(b)
give a guarantee or provide security in connection with a loan or quasi-
loan made by any person to such a director, or to a person connected
with such a director,
20

unless the transaction has been approved by a resolution of the members of the
company.
(2)
If the director or connected person is a director of its holding company or a
person connected with such a director, the transaction must also have been
approved by a resolution of the members of the holding company.
25
(3)
A resolution approving a transaction to which this section applies must not be
passed unless a memorandum setting out the matters mentioned in subsection
(4) is made available to members—
(a)
in the case of a written resolution, by being sent or submitted to every
eligible member at or before the time at which the proposed resolution
30
is sent or submitted to him;
(b)
in the case of a resolution at a meeting, by being made available for
inspection by members of the company both—
(i)
at the company’s registered office for not less than 15 days
ending with the date of the meeting, and
35
(ii)
at the meeting itself.
(4)
The matters to be disclosed are—
(a)
the nature of the transaction,
(b)
the amount of the loan or quasi-loan and the purpose for which it is
required, and
40
(c)
the extent of the company’s liability under any transaction connected
with the loan or quasi-loan.
(5)
No approval is required under this section on the part of the members of—
(a)
a body corporate that is not—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 4 — Transactions with directors requiring approval of members
91

(i)
a company as defined in section 1 of this Act, or
(ii)
a body registered under the Companies Acts by virtue of
section 1006 (bodies not formed under Companies Acts but
authorised to register);
(b)
a body corporate that is a wholly-owned subsidiary of another body
5
corporate.
199
Meaning of “quasi-loan” and related expressions
(1)
A “quasi-loan” is a transaction under which one party (“the creditor”) agrees to
pay, or pays otherwise than in pursuance of an agreement, a sum for another
(“the borrower”) or agrees to reimburse, or reimburses otherwise than in
10
pursuance of an agreement, expenditure incurred by another party for another
(“the borrower”)—
(a)
on terms that the borrower (or a person on his behalf) will reimburse
the creditor; or
(b)
in circumstances giving rise to a liability on the borrower to reimburse
15
the creditor.
(2)
Any reference to the person to whom a quasi-loan is made is a reference to the
borrower.
(3)
The liabilities of the borrower under a quasi-loan include the liabilities of any
person who has agreed to reimburse the creditor on behalf of the borrower.
20
200
Credit transactions: requirement of members’ approval
(1)
A company may not—
(a)
enter into a credit transaction as creditor for the benefit of a director of
the company or of its holding company, or a person connected with
such a director, or
25
(b)
give a guarantee or provide security in connection with a credit
transaction entered into by any person for the benefit of such a director,
or a person connected with such a director,

unless the transaction (that is, the credit transaction, the giving of the guarantee
or the provision of security, as the case may be) has been approved by a
30
resolution of the members of the company.
(2)
If the director or connected person is a director of its holding company or a
person connected with such a director, the transaction must also have been
approved by a resolution of the members of the holding company.
(3)
A resolution approving a transaction to which this section applies must not be
35
passed unless a memorandum setting out the matters mentioned in subsection
(4) is made available to members—
(a)
in the case of a written resolution, by being sent or submitted to every
eligible member at or before the time at which the proposed resolution
is sent or submitted to him;
40
(b)
in the case of a resolution at a meeting, by being made available for
inspection by members of the company both—
(i)
at the company’s registered office for not less than 15 days
ending with the date of the meeting, and
(ii)
at the meeting itself.
45
(4)
The matters to be disclosed are—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 4 — Transactions with directors requiring approval of members
92

(a)
the nature of the transaction,
(b)
the value of the credit transaction and the purpose for which the land,
goods or services sold or otherwise disposed of, leased, hired or
supplied under the credit transaction are required, and
(c)
the extent of the company’s liability under any transaction connected
5
with the credit transaction.
(5)
No approval is required under this section on the part of the members of—
(a)
a body corporate that is not—
(i)
a company as defined in section 1 of this Act, or
(ii)
a body registered under the Companies Acts by virtue of
10
section 1006 (bodies not formed under Companies Acts but
authorised to register);
(b)
a body corporate that is a wholly-owned subsidiary of another body
corporate.
201
Meaning of “credit transaction”
15
(1)
A “credit transaction” is a transaction under which one party (“the creditor”)—
(a)
supplies any goods or sells any land under a hire-purchase agreement
or a conditional sale agreement,
(b)
leases or hires any land or goods in return for periodical payments, or
(c)
otherwise disposes of land or supplies goods or services on the
20
understanding that payment (whether in a lump sum or instalments or
by way of periodical payments or otherwise) is to be deferred.
(2)
Any reference to the person for whose benefit a credit transaction is entered
into is to the person to whom goods, land or services are supplied, sold, leased,
hired or otherwise disposed of under the transaction.
25
(3)
In this section—
“conditional sale agreement” has the same meaning as in the Consumer
Credit Act 1974 (c. 39); and
“services” means anything other than goods or land.
202
Related arrangements: requirement of members’ approval
30
(1)
A company may not—
(a)
take part in an arrangement under which—
(i)
another person enters into a transaction that, if it had been
entered into by the company, would have required approval
under section 198 or 200, and
35
(ii)
that person, in pursuance of the arrangement, obtains a benefit
from the company or a body corporate associated with it, or
(b)
arrange for the assignment to it, or assumption by it, of any rights,
obligations or liabilities under a transaction that, if it had been entered
into by the company, would have required such approval,
40

unless the arrangement in question has been approved by a resolution of the
members of the company.
(2)
If the director or connected person for whom the transaction is entered into is
a director of its holding company or a person connected with such a director,